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A Bird's Eye View Blog

Fireside Charts: Forward P/E Ratio and EPS Projections, Equity Return Trends, and the Food Supply Chain

By:BCM Investment Team | Date:Apr29, 2020 | Category: Equity, Economics, Market Highlights, Fireside Charts

It's a big day for the markets with Q1 GDP data, an FOMC meeting, and earnings reports from industry leaders Microsoft and Facebook. Amid a 4.8% contraction in GDP—the sharpest since the financial crisis—the S&P 500® Index forward P/E ratio shows that stocks remain expensive, meaning that demand has remained high despite the nosedive in earnings per share (EPS) projections. The S&P 500's weathered the coronavirus crisis better than many indices, but how much of that is down to the $4 trillion behemoth of FAANG + Microsoft, and are we putting too many eggs in that basket? Meanwhile, as banks and investors alike pile into traditional "safe havens" like money markets and treasuries, it's worth noting that credit related sectors took a significant (re: double digit) blow in Q1. And will the explosion of central bank easing and government stimulus be enough to prop up the meat-processing industry? Finally, as various nations and U.S. states begin to emerge from lockdown, where does global opinion stand on re-opening the economy?



1. Markets are famous for climbing a wall of worry. Have the bulls gone a bit too far, too fast? Earnings season isn't even half over...


s&p 500 forward p/e ratio

Source: WSJ Daily Shot, from 4/27/20



2. As earnings drop, based on the recent rally, it reminds us that the markets are forward looking mechanism...


forward eps s&p 500

Source: WSJ Daily Shot, from 4/29/20



3. When is too big too big? FAANG + Microsoft now have a $4 trillion aggregate value, larger than all but two countries' stock market aggregate values...


mega-caps faang

Source: Research Affiliates, as of 6/30/19



4. Much has changed in the world in the last 150 years...


attribution of equity returns

Source: WSJ Daily Shot, from 4/29/20



5. Speaking of trends...here are some equity returns over the past decade.


equity returns by country

Source: WSJ Daily Shot, from 4/29/20



6. With rates so low, are these assets still considered "safe"? Their returns are certainly going to be paltry as ~93% of a bonds return is driven by the coupon...


banks safety assets

Source: Wall Street Journal, from 4/24/20



7. Many do not realize that bonds had losses in March as well...


bond market performance

Source: SSgA, as of 3/31/20



8. What does this mean for the future?


fed assets relative to gdp

Source: WSJ Daily Shot, as of 4/22/20



9. Central Bank bond purchases (QE) have already dwarfed the post Great Recession levels...


central bank stimulus

Source: WSJ Daily Shot, from 4/28/20



10. The Pandemic plus the oil feud has caused the Texas area's manufacturing to be hit harder than most...


dallas fed manufacturing index

Source: WSJ Daily Shot, from 4/29/20



11. Isn't it time we protected the folks who create our food supply?


meat-processing plant closures

Source: Bloomberg, from 4/27/20 & Reuters, from 4/27/2020



12. Are small caps finally waking up?


european stocks

Source: WSJ Daily Shot, from 4/29/20



13. Talk about a mega-cycle...


latin american equities

Source: WSJ Daily Shot, from 4/29/20



14. Unlike the developed world, EM needs foreign capital to help fund their economies. Capital has been fleeing, forcing debt issuance. Note 2020 is through April 23rd!


EM bond issuance

Source: Dealogic, as of 4/23/20



15. So much for the trade deal with China...the opportunity to buy U.S. oil is squandered on Saudi and Russian purchases...


china oil purchases

Source: WSJ Daily Shot, from 4/28/20



16. As we pointed out in our quarterly calls, if we open too early...


open economy poll

Source: WSJ Daily Shot, from 4/29/20



17. ...Will we be doomed to repeat the results of other historical coronavirus pandemics? Here is the flu 1918-19...


spanish flu

Source: WSJ Daily Shot, from 4/29/20




High dividend ETFs/funds are popular among investors seeking relatively safe and stable yield, but could a high dividend yield actually indicate that a company's in trouble? It's possible—just ask 2007! If you haven't already, read "A Caution from 2007: Beware of the Dividend in Your High Dividend ETFs & Funds" by BCM Portfolio Manager Dave Haviland to learn more.


A Caution from 2007






Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.